Agent Fails to Check Zoning for Buyer or Seller (RECO Discipline)
This really is a case about a lazy agent. In fact, that’s exactly what the Panel concluded.
Wilma Flintstone listed a property for sale. She thought that there were two units. That’s what see saw, but, she didn’t check with the municipality. The second unit was illegal, it was contrary to the zoning by-laws.
Multiple Listing Service® (“MLS”) listing information, as authored by Wilma, contained the following “realtor remarks”:
“Super easy to show! Fabulous home used as 2 family … Great opportunity to own your own rental property or live-in one unit and let the other one pay your mortgage!
Both units show well, high ceilings, laminate floors, some vinyl windows, fenced yard, parking.”
Wilma also marketed the property on the web sites Kijiji and Facebook, indicating “fabulous family home with income rental”.
On 11 October 2011, an agreement of purchase and sale was signed for $143,000.00. Wilma acted in a multiple representation capacity on the transaction.
The Confirmation of Co-operation and Representation indicated, confirmed that the listing brokerage:
- had a duty of full disclosure to both the Seller and the Buyer, including
- a duty to disclose all factual information about the Property known to the Brokerage and Wilma.
Notwithstanding references in the marketing materials that indicated that the Property was being used as two units, the local zoning only permitted single family dwellings.
The Buyer was purchasing as an investor and his sole intention was to rent out the units. The Buyer states that had he known that one of the units was illegal he would not have made the purchase, or, alternatively, would not have paid to purchase the price agreed to in the APS.
The fact that one unit was not legally permitted to be rented meant that the future revenue stream would be lower than anticipated and that, also, the resale of the Property may be diminished as a result of the misrepresentation regarding the use to which the Property might be placed.
Wilma had duties and obligations to the Buyer, as a client, to determine and disclose all material facts relating to the Property and this she failed to do.
Furthermore, Wilma advertised the Property indicating that it was being used as two rental units and was marketing the Property on that basis.
However, Wilma either deliberately or negligently represented the Property as having two units, when in fact the zoning did not allow two units as a lawful use
Here is a copy of the RECO Decision in this matter:
Wilma Flintstone acted unprofessionally as follows:
1. Contrary to section 4 of the Code of Ethics, Wilma failed to promote and protect the best interests of her client the Buyer by failing to be aware of zoning matters affecting the Property or by failing to impart information to her buyer client regarding zoning restrictions, or both.
This failure to promote the best interests meant a significant attribute of the Property (lawful multiple residential use) that the Buyer thought he was purchasing was, in fact, an illegal use of the Property.
2. Contrary to section 5 of the Code of Ethics, Wilma failed to provide conscientious service to her client the Buyer and failed to demonstrate reasonable knowledge, skill, judgment and competence in providing services by failing to properly determine the legal uses of the Property and indeed marketed the Property on a basis that was illegal.
The failure to properly review and issue as fundamental to the transaction as the applicable zoning by-laws constitutes a clear failure to provide conscientious service to Wilma’s client and was a clear failure to demonstrate reasonable knowledge, skill, judgment and competence in providing services.
3. Contrary to s.21(1) of the Code of Ethics, Wilma failed to take reasonable steps to determine material facts relating to the acquisition of the Property for her client the Buyer and therefore did not disclose material facts to her client the Buyer.
Specifically, Wilma did not inform the Buyer of the material fact that the Property was not zoned multiple residential and therefore the use of the Property as multiple residential is not lawful.
4. Contrary to s.38 of the Code of Ethics, Wilma failed to use her best efforts to prevent error in a trade in real estate; specifically, Wilma did not use her best efforts to avoid a substantial error regarding zoning that affected the permissible uses of the Property.
Indeed, it was Wilma’s lack of effort in determining whether the use advertised by her was a legal use that leads directly to significant and harmful error.
It is agreed that Wilma breached the following sections of the Code of Ethics:
4. A registrant shall promoted and protect the best interests of the registrant’s clients.
CONSCIENTIOUS AND COMPETENT SERVICE, ETC.
5. A registrant shall provide conscientious service to the registrant’s clients and customers and shall demonstrate reasonable knowledge, skill, judgment and competence in providing those services.
21. A broker or salesperson who has a client in respect of the acquisition or disposition of a particular interest in real estate shall take reasonable steps to determine the material facts relating to the acquisition or disposition and, at the earliest practicable opportunity, shall disclosed the material facts to the client.
ERROR, MISREPRESENTATION, FRAUD
38. A registrant shall use the registrant’s best efforts to prevent error, misrepresentation, fraud or any unethical practice in respect of a trade in real estate.
Wilma Flintstone was ordered to pay a penalty of $10,000.00 not later than 180 days after the date of the Decision of the Discipline Committee on this matter.
This particular issue seemed to arise by reason of Wilma’s lack of effort. Let’s look precisely at what the Panel thought she did wrong:
- failed to properly determine the legal uses
- failed to properly review and issue as fundamental to the transaction as the applicable zoning
- failed to take reasonable steps to determine material facts
- failed to use her best efforts to prevent error
And, of course, the BIG ISSUE:
“Indeed, it was Wilma’s lack of effort in determining whether the use advertised by her was a legal use that leads directly to significant and harmful error.”
Note: As a rule, I use fictitious names. The actual case is published on RECO’s website and is available to the public. For educational purposes, the names of the parties really don’t have any bearing. If you need to quote the case, you will have to obtain the proper legal citation.
Brian Madigan LL.B., Broker